Tips for tax planning for individuals

tax planning

Consider adjusting tax withholding or estimated payments

If you owed taxes for 2019, you may want to revise the Form W-4. To help you do this, consider using the IRS’s “Tax Withholding Estimator,” available at If estimated tax payments are made throughout the year (self-employed, for example), take a closer look at their tax situation for 2020 to make sure they are not underpaying or overpaying.

Amended returns

Ordinarily, an amended tax return is only filed when an error or omission is discovered after a return has been filed. With the current COVID-19 situation, any opportunity to put a little money back your client’s pocket is worth pursuing. Major tax laws passed within the last year contain retroactive provisions that could make amending the 2018 and/or the 2019 return worth the cost.

Take advantage of lower tax rates on investment income

Income from an investment held for more than one year is generally taxed at preferential capital gains rates. Those rates are 0%, 15%, and 20% for most investments. The rate that applies is determined by your taxable income. If possible, your client should get the income low enough to qualify for the 0% rate. If income is too high to benefit from the 0% rate, try gifting investments (like appreciated stock or mutual fund shares) to children, grandchildren, or other loved ones. Chances are these individuals will be in the 0% or 15% capital gains tax bracket. If they later sell the investments, any gain will be taxed at the lower rates, as long as your client and their loved one owned the investments for more than one year. However, beware of the “Kiddie Tax,” which applies to all children under age 18 and most children age 18 or age 19–23 who are full-time students. It may limit the opportunity to take advantage of this strategy.

Retirement plans

If your are affected by COVID-19 and needs additional cash flow, the CARES Act contains several taxpayer-friendly provisions for retirement plan distributions up to $100,000 taken prior to the end of 2020. If they have funds in a traditional IRA and have been considering converting the account to a Roth IRA, 2020 might be a great year to execute that plan.

Check your deduction strategy

It’s best to itemize the deductions if you have significant personal expenses. However, don’t rule out the standard deduction. For 2020, joint filers can enjoy a standard deduction of $28,400. The standard deduction for heads of household is $18,650, and single taxpayers (including married taxpayers filing separately) can claim a standard deduction of $12,400. If you’re able to itemize, please note that the Tax Cuts and Jobs Act (TCJA) (a major tax reform bill passed in December 2017) suspended or limited many of the itemized deductions. However, we have some planning techniques that may help.

Don't sit back and wait until next year to worry about your taxes. Take action now.. 

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